SMC Global Monthly Report on Bullions & Energy

SPECIAL MONTHLY REPORT ON

Bullions & Energy(April 2014)

2

BU

LL

ION

S &

EN

ER

GY

April 2014

BULLIONS AND ENERGY PERFORMANCE ( - 31st March 2014) (% change) 28th February 2014

Source: Reuters and SMC Research

COMEX/NYMEX MCX

-5.16

-7.67

-3.96

-8.89

-2.97

-6.81

-1.15

-3.08

-10.00 -9.00 -8.00 -7.00 -6.00 -5.00 -4.00 -3.00 -2.00 -1.00 0.00

Gold

Silver

Crude oil

Natural Gas

3

BULLIONS

In the month of March bullion counter ended on

negative note as rise in greenback and fed statement

that interest rates may increase from next year

pressurized the prices lower. Fed Chair Janet Yellen

stated that interest rates could rise “around six

months” after asset purchases end. Policy makers

cut monthly bond buying by $10 billion at the

conclusion of their two day meeting, leaving

purchases at $55 billion. However some strength in

the domestic rupee pressurized the prices lower.

Overall gold traded in range of 28119-30737 in MCX

and $1285-1387 in COMEX. Dollar index faced key

support near 79.26 levels and rebounded higher in

the month of March. Silver traded in range of

$19.55-21.75 in COMEX and 42411-47877 in MCX.

Russia has increased its gold holdings by 7.247

tonnes to 1042 tonnes in February. Hong Kong's net

gold exports to China jumped 25% in February after

a small drop in the previous month. China imported

about 1158.16 tonnes from Hong Kong alone in 2013

which is more than double its 557.48 tonnes in 2012.

In the month of April 2014 bullion counter can move

sideways with weak bias. On domestic bourses the

movements of local currency Rupee will be key

factor to watch out which can move in range of 58.5-

61.5 in the month of April. Gold can trade in

range of Rs 27300-29800 in MCX and $1250-

1380 in COMEX. Silver can trade in range of

41500-45000 in MCX and $19-22.50 in

COMEX. The gold/silver ratio has moved up from

60 to 66.3 which showed that silver fell at faster pace

than gold recently. This ratio can hover in range of

63-69 in the month of April. Recovery in US

economy has also led to reduced safe haven demand

in bullion counter. The U.S. economy grew more

rapidly in the fourth quarter than previously

estimated, and applications for jobless benefits

unexpectedly fell last week. Meanwhile Fed Chair

Janet Yellen stated that interest rates could start

increasing six months after the Fed ends its asset

purchasing program. Geopolitical tensions in

Middle East and in any other part of the globe will

have positive impact on gold prices as it is

considered safe haven in times of geopolitical

uncertainty. Escalating tension in Ukraine and

concern that a slowdown in China is deepening BU

LL

ION

SApril 2014

increased demand for a protection of wealth will

increase the safe haven demand of gold.

India tightens checks to curb gold smuggling

India has started to make physical checks of gold stocks

held by wholesalers to ensure inventories match the

amount imported by banks and state-run traders. To

tackle a widening trade deficit, India - the world's

second biggest gold consumer behind China - has put in

place measures to dissuade gold buying, including a 10

percent import tax. Imports have fallen sharply, leading

to shortages and triggering smuggling. India imported

about 750 tonnes of gold in 2013, while up to another

200 tonnes was believed to have been smuggled into the

country, according to the World Gold Council.

WGC Demand summary

The third quarter of 2013 saw a 21% contraction in gold

demand from the third quarter of 2012, to 868.5 tonnes.

Outflows from ETF positions were in pace than the

previous quarter, were the main reason for the weaker

quarterly total. However, demand at the consumer level

was resilient; eastern markets remained the driving

force behind growth in demand for gold jewellery, bars

and coins. Central bank net purchases, which slowed in

line with our predictions, were again a solid pillar of

demand. The supply of gold was down by 3%, to 1,145.5

tonnes as a reduction in recycling activity more than

offset a modest increase in mine production.

Gold investment demand

Q3 of 2013 was another mixed quarter for the

investment sector, as the two key elements of gold

continued to diverge: demand for bars and coins

increased by 6% while ETFs saw a third consecutive

quarter of net outflows. The net result was a 56% decline

in Q3 of 2013 investment demand. Inclusive of OTC

investment and stock flows (which represents the less

visible elements of institutional investment, as-yet

unquantifiable stock changes and any statistical

residual), total investment demand is broadly flat, down

just 1% year-on-year.

4

BU

LL

ION

SApril 2014

World official gold holdings (March 2014)

Source: WGC

5

BU

LL

ION

SApril 2014

China Overtakes India In Gold Consumption-

WGC:

According to world Gold Council “China became the

largest gold market in the world for the first time in

2013”.Demand for gold in China set a remarkable

new record of 1,066 tonnes, a rise of 32% year on

year. Gold consumption in China grew to 1,176.40

tonnes last year, with jewellery demand climbing

43% to 716.50 tonnes and bullion demand soaring

57% to 375.73 tonnes. China's gold output in 2013

rose 6.2 % from the previous year to a record high

428.163 tonnes, making the country the world's

biggest producer for a seventh straight year. China's

foreign exchange reserves, the world's largest, rose

to $3.82 trillion at the end of 2013.

Gold and emerging markets

Over the past decade, emerging markets have

benefited from strong growth and cheap funding.

Investors have increased their exposure and, given

the positive long-term view of these economies,

there is a strong rationale for investors to have EM in

their portfolios. However, given recent market

volatility and concerns about the sustainability of

EM growth, it is more pressing than ever for

investors to understand how to hedge exposure to

the asset class and, even if they don't have direct

holdings, how to reduce the effects of a spillover in

their portfolios. While EM crises may have been

regionally contained in the past, the increasing

weight of these markets in global GDP and

international trade could increase the risk of

contagion in any future crisis. In that context, there

is a strong argument for using gold to enhance EM

hedging strategies.

Ukraine tensions and Gold

Recently escalating military tension between

Ukraine and Russia bolstered demand for assets

such as gold which is perceived to be relatively safe

haven. Tensions between West and Russia since the

end of the Cold War increases demand for the metal

as a haven. As a result of the escalation of this

conflict and the damages it's going to do to the

European economy, people are going to continue to

rotate out of the stock market into the gold market.

The uncertainty surrounding Ukraine could push

gold prices higher in the next few weeks although

diplomatic and political solutions are going to be sought

a lot will also depend on investor positioning.

China economy and Gold

While there is wide consensus that developed markets

are in recovery mode, there is less certainty about the

state of the Chinese economy. Following more than a

decade of strong growth, some market participants fear

the economy could continue to lose steam and that easy

credit may have formed asset bubbles that could burst at

any time. However, there is also an alternative view in

the market: concerned with growth suitability, the

Chinese government will continue a pro-market shift to

economic policies, including financial reform and

improving the budget management and tax systems, in

the hope of structurally improving long term growth.

Further, a recovery in developed markets could

strengthen exports and reignite growth in various

economic sectors.

WGC Gold demand scenario

The gold market became polarised in 2013 as 21%

growth in demand from consumers and value-seeking

investors contrasted with large-scale outflows from

ETFs. The net result was a 15% decline in full-year gold

demand in a year where jewellery, bar and coin demand

reached an all-time high. Chinese consumers set a new

annual record, while India was resilient in the face of

import restrictions. The sharp fall in the gold price in

the second quarter elicited a strong and swift response

from consumers in Asia and the Middle East, an effect

that extended out to western markets in the final

quarter of the year.

Gold supply

Gold supplied to the market during the third quarter of

2013 totalled 1,145.5t, 3% below the same period in

2012. The year-on-year contraction is largely explained

by lower levels of recycling, outweighing modest growth

in mine supply. Year-to-date the supply of gold is 4%

lower than the same period of 2012 at 3,196t. The

primary driver is a contraction in the supply of gold

from recycling almost to pre-crisis levels.

6

BU

LL

ION

SApril 2014

7

BU

LL

ION

SApril 2014

Gold Silver Ratio

Source: Reuters

Analysis: Steady rise in the gold silver ratio from nearly 60.5 to above 66 recently indicates that silver fell at

faster pace than gold .This ratio can move in range of 63-69 in the month of April.

8

BU

LL

ION

SApril 2014

9

BU

LL

ION

SApril 2014

Gold supply

The annual supply of recycled gold declined for the

sixth consecutive year to the lowest level since 2008.

Annual gold mine production grew by 154.4t (5%) in

2013, the bulk of which came through in the second

half of the year. The fourth quarter saw a clear

continuation of the trend that was in place

throughout much of the year: new mines either

coming on stream or building up to full capacity and

growth in production of existing operations.

Growing Industrial Demand of Silver

Silver conducts heat and electricity better than any

other metal on Earth. It is also anti-bacterial. These

amazing properties make silver indispensable in a

vast array of modern industrial and technological

applications. This industrial demand has been

shifting dramatically since the turn of the century, as

defunct applications for silver like photographic

film have been replaced by new technologies like

photovoltaic power. The evolution of silver's

industrial applications continues unabated, with

new uses being developed every year. In spite of a

recent dip in demand for industrial silver due to

global economic volatility, the fundamentals of the

industries consuming silver look promising.

Biotechnology

Recent advances in biotechnology have brought a

renewed focus on silver's centuries old history as an

important medical weapon. The Silver Institute

observed that the medical use of silver has helped

reduce the growing threat of antibiotic-resistant germs

spreading through a hospital. Today, the need to

combat antibiotic-resistant superbugs and to suppress

hospital-acquired infections has increased the

importance and number of uses of silver-infused

products.

In the month of April 2014 bullion counter will

remain sideways with weak bias. Ukraine

tensions and movement of greenback may

support the prices to some extent. Moreover

condition of global economy and movement of

local currency rupee coupled with Physical,

ETF demand will also influence its prices.

Range

Gold MCX Rs 27300-29800 per 10 gms

COMEX $1250-1380 per troy ounce

Gold Hedge NCDEX Rs 24000-26500 per 10 gms

Silver MCX Rs 41500-45000 per kg

COMEX $19-22.50 per ounce

Silver Hedge NCDEX Rs 3500-4500 per 100 gms

ENERGYENERGYCRUDE OIL & NATURAL GASCRUDE OIL & NATURAL GAS

11

EN

ER

GY

ENERGY COMPLEX

Crude Oil

In the month of March crude oil prices was subdued

on rising greenback and increasing stockpiles. On

domestic bourses stronger local currency rupee has

kept the prices under pressure. Meanwhile Ukraine

and Russia tensions supported the prices. Last

month U.S. announced sanctions on Russia after it

seized control of Crimea from Ukraine. Prices traded

in range of nearly $97.28- 105.21 in NYMEX and

5975-6547 in MCX. According to the Energy

Information Administration “Total U.S. crude

inventories expanded by 6.62 million barrels to

382.5 million” The Organization of Petroleum

Exporting Countries will curtail exports by 620,000

barrels a day, or 2.5 percent, to 23.78 million a day in

the four week to April 12 in response to lower

seasonal demand from refiners in Asia, according to

tanker-tracker Oil Movements.

Crude oil futures can move on mixed path

with some short covering can be seen in the

April 2014

month of April .Fall in stockpiles and rising demand

in US supported the prices while rising greenback can

curtail the upside. Economic data from US and Europe

will give direction to the crude oil prices. Middle East

tensions may result in reduced supplies which may also

give support to the crude oil prices. Crude oil can

move in range of 5900-6350 in the month of

April. The situation in Ukraine and Russia will be

closely watched by the crude oil investors. The U.S.

Senate and House passed separate bills imposing

additional sanctions on Russian officials for the nation's

annexation of Crimea from Ukraine. The House

measure would codify sanctions already announced by

Obama. It would encourage imposing more penalties on

Russians with “significant influence over the formation

and implementation of Russian foreign policy”

involving Crimea. Meanwhile any U.S. and Russia

diplomatic solution to the Ukraine situation can keep

the upside capped.

Brent WTI Spread

Source: Reuters

Analysis: Brent WTI spread has narrowed recently to below 7 after testing high of nearly 15 in beginning of this

year .This spread can hover in range of 5-9 in near term. The spread has narrowed down as Enterprise Products

Partners (EPD) said it would more than double the capacity of its Seaway pipeline in mid-2014. The Seaway

pipeline currently brings crude oil from the inland U.S. oil hub of Cushing, Oklahoma, to the Gulf Coast. The

increased transportation capacity from inland U.S. crude production regions to demand centers (such as

refineries on the Gulf Coast) is bullish for WTI crude oil prices. The expanded pipeline is reported to be able to

move more than 850,000 barrels per day of crude oil.

12

EN

ER

GY

April 2014

Some key points from EIA estimates

Global Crude Oil and Liquid Fuels

Consumption

EIA estimates that global consumption grew by 1.2

million bbl/d in 2013, averaging 90.4 million bbl/d

for the year. EIA expects global consumption to

grow 1.2 million bbl/d in 2014 and 1.4 million bbl/d

in 2015. Projected global oil-consumption-weighted

real GDP, which increased by an estimated 2.3% in

2013, grows by 3.1% and 3.5% in 2014 and 2015,

respectively.

Non-OECD countries as a group are expected to

account for all of the consumption growth in 2014

and nearly all of the growth in 2015. China is the

leading contributor to projected global

consumption growth, with consumption increasing

by 400,000 bbl/d in 2014 and 430,000 bbl/d in

2015. However, China's economic and oil

consumption growth rates have moderated

compared with rates before 2012, when annual GDP

growth exceeded 9% and oil consumption growth

averaged 700,000 bbl/d from 2009 through 2012.

EIA expects lower OECD consumption in 2014, led

by projected consumption declines in both Japan

and Europe. EIA expects Japan's oil consumption

to fall by an annual average of 150,000 bbl/d in 2014

and 2015, as the country continues to increase

natural gas consumption in the electricity sector and

returns some nuclear power plants to service. EIA

projects that OECD Europe's consumption, which

fell by 60,000 bbl/d in 2013, will decline by another

60,000 bbl/d in 2014 and then remain mostly flat in

2015. U.S. liquids consumption, which increased by

400,000 bbl/d in 2013, is expected to remain flat in

2014 and then increase by 100,000 bbl/d in 2015.

Non‐OPEC Supply

EIA estimates that non-OPEC liquids production

grew by 1.3 million bbl/d in 2013, averaging 54.0

million bbl/d for the year. EIA expects non-OPEC

liquids production to grow by 1.8 million bbl/d in

2014 and 1.5 million bbl/d in 2015. EIA forecasts

production from the United States and Canada to

grow by a combined annual average of 1.3 million

bbl/d in 2014 and 1.2 million bbl/d in 2015. Brazil's

production is expected to increase by an annual

average of 0.15 million bbl/d over the next two years,

attributable to new deepwater fields. EIA estimates

that Asia and Oceania's production will rise by an

annual average of 0.18 million bbl/d over the

forecast period, led by China.

OPEC Supply

EIA estimates that OPEC crude oil production averaged

30.0 million bbl/d in 2013, a decline of 0.9 million bbl/d

from the previous year, primarily reflecting increased

outages in Libya, Nigeria, and Iraq, and strong non-

OPEC supply growth. EIA expects OPEC crude oil

production to fall by 0.5 million bbl/d and 0.3 million

bbl/d in 2014 and 2015, respectively, as some OPEC

countries, led by Saudi Arabia, reduce production to

accommodate the non-OPEC supply growth in 2014. In

recent months, EIA revised upward historic data for

OPEC non crude liquids supply. Projected OPEC

noncrude oil liquids production, which averaged an

estimated 6.3 million bbl/d in 2013, increases to an

average of 6.5 million bbl/d in 2015.

Unplanned crude oil supply disruptions among OPEC

producers averaged more than 2.3 million bbl/d in

February 2014, almost 0.1 million bbl/d higher than the

previous month. Libya continues to experience swings

in its production, contributing to changes in the OPEC

disruption estimate.

U.S. Liquid Fuels Consumption

Total U.S. liquid fuels consumption rose by an

estimated 400,000 bbl/d (2.1%) in 2013. Consumption

of hydrocarbon gas liquids registered the largest gain,

increasing by 150,000 bbl/d (6.4%). Motor gasoline

consumption grew by 90,000 bbl/d (1.1%), the largest

increase since 2006. Stronger-than-expected growth in

highway travel during the second half of 2013

contributed to that increase. Distillate fuel

consumption increased by 90,000 bbl/d (2.5%),

reflecting colder weather and domestic economic

growth.

U.S. Liquid Fuels Supply

Harsh winter conditions over the past few months

negatively affected well completion activity in the

northern U.S. plays. As more evidence of this seasonal

slowdown has appeared in the data, EIA has revised

downward initial estimates for December 2013 and

January 2014 U.S. crude oil production. Because the

weather effects are temporary, much of the production

slowdown is expected to be made up by accelerated

completion activity over the next few months.

13

EN

ER

GY

April 2014

EIA expects strong crude oil production growth,

primarily concentrated in the Bakken, Eagle Ford,

and Permian regions, continuing through 2015.

Forecast production increases from an estimated 7.5

million bbl/d in 2013 to 8.4 million bbl/d in 2014

and 9.2 million bbl/d in 2015. The highest historical

annual average U.S. production level was 9.6 million

bbl/d in 1970.

Range

Crude Oil

MCX Rs 5900-6350 per barrel

NYMEX $96-105 per barrel

Crude oil may remain on mixed path with some

short covering can be seen amid Ukraine

tensions. Global macroeconomic numbers

along with weekly inventory data in US will

also affect the overall sentiments.

14

EN

ER

GY

April 2014

15

Natural Gas

from 24.9 Bcf/d in 2012 to 22.3 Bcf/d in 2013 and Natural gas prices also witnessed selling pressure in 22.0 Bcf/d in 2014. In 2015, total natural gas the month of March on warmer weather conditions consumption falls by 0.3 Bcf/d as a decline in and declining demand. Overall it traded in range of residential and commercial consumption more $4.24-4.73 in NYMEX and 260.30-291 in MCX. than offsets consumption growth in the industrial

Natural gas prices have been under heavy selling and electric power sectors. EIA expects natural gas pressure in recent sessions amid concerns that the consumption in the power sector to increase to 22.6 arrival of spring will bring warmer temperatures Bcf/d in 2015 with the retirement of some coal throughout the U.S. and cut into demand for plants. heating. Natural gas can move in range of 250-290

in the month of April. Movement of stockpiles and

weather conditions will give further direction to U.S. Natural Gas Production and Trade

natural gas prices. Investors are betting seasonably

mild weather typical of this time of year will curb EIA expects natural gas marketed production will

demand for both heating and air conditioning grow at an average rate of 2.5% in 2014 and 1.1% in

across much of the U.S. 2015. Rapid natural gas production growth in the

Marcellus formation is causing natural gas forward Spring see the weakest demand for natural gas in

prices in the Northeast to fall even with or below the U.S, as the absence of extreme temperatures

Henry Hub prices outside of peak-demand winter curbs demand for heating and air conditioning. The

months. Consequently, some drilling activity may heating season from November through March is

move away from the Marcellus back to Gulf Coast the peak demand period for U.S. gas consumption.

plays such as the Haynesville and Barnett, where Approximately 52% of U.S. households use natural

prices are closer to the Henry Hub spot price. gas for heating, according to the Energy

Department. Liquefied natural gas (LNG) imports have declined

over the past several years because higher prices in

Europe and Asia are more attractive to sellers than

the relatively low prices in the United States. Ukraine tensions and natural gas Several companies are planning to build

Natural gas can get support from the tensions in liquefaction capacity to export LNG from the Ukraine as Russia, which provided 30 percent of United States. Cheniere Energy's Sabine Pass Europe's natural gas last year, sends half of its facility is planned to be the first to liquefy natural supplies via Ukraine. So far, Russian gas shipments gas produced in the Lower 48 states for export. The to Ukraine and the rest of Europe haven't been facility has a total liquefaction capacity of 3 Bcf/d disrupted during the crisis. and is scheduled to come online in stages beginning

in late 2015.

Natural gas prices will depend upon EIA Natural gas estimatesweather conditions and power generation

U.S. Natural Gas Consumption demand coupled with its consumption

pattern and inventory position in the EIA expects total natural gas consumption will

month of April 2014. average 71.3 Bcf per day (Bcf/d) in 2014, a drop of

0.1 Bcf/d from 2013. The projected year-over-year

increases in natural gas prices contribute to declines

in natural gas used for electric power generation

EN

ER

GY

April 2014

Range

Natural gas

NYMEX $4.20- $4.70 per mmBtu

MCX Rs250-290 per mmBtu

16

EN

ER

GY

April 2014

SMC Global Securities Limited is proposing, subject to receipt of requisite approvals, market conditions and other considerations, a further public issue of its equity shares and has filed a Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI). The DRHP is available on the website of the SEBI at www.sebi.gov.in and the website of the Book Running Lead Managers i.e. Tata Securities Limited at www.tatacapital.com and IL&FS Capital Advisors Limited at www.ilfscapital.com. Investors should note that investment in equity shares involves a high degree of risk. For details please refer to the DRHP and particularly the section titled Risk Factors in the Draft Red Herring Prospectus.

Disclaimer:

This report is for the personal information of the authorized recipient and doesn't construe to be any investment, legal or taxation advice to you. It is only for private circulation and use .The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. No action is solicited on the basis of the contents of the report. The report should not be reproduced or redistributed to any other person(s)in any form without prior written permission of the SMC.

The contents of this material are general and are neither comprehensive nor inclusive. Neither SMC nor any of its affiliates, associates, representatives, directors or employees shall be responsible for any loss or damage that may arise to any person due to any action taken on the basis of this report. It does not constitute personal recommendations or take into account the particular investment objectives, financial situations or needs of an individual client or a corporate/s or any entity/s. All investments involve risk and past performance doesn't guarantee future results. The value of, and income from investments may vary because of the changes in the macro and micro factors given at a certain period of time. The person should use his/her own judgment while taking investment decisions.

Please note that we and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance if this material;(a) from time to time, may have long or short positions in, and buy or sell the commodities thereof, mentioned here in or (b) be engaged in any other transaction involving such commodities and earn brokerage or other compensation or act as a market maker in the commodities discussed herein (c) may have any other potential conflict of interest with respect to any recommendation and related information and opinions. All disputes shall be subject to the exclusive jurisdiction of Delhi High court.

Your valuable feedback will be appreciated

For further queries

Pls. Contact

Sandeep Joon Senior Research Analyst

Phone 011-30111000 Extn - 683

E-mail [email protected]

Supportive team

Pramod Chhimwal Graphic Designer

April 2014